For many people, letting a room – or even an entire home – on Airbnb is an occasional helpful aid to paying off the mortgage. For others, the home letting website is a source of regular income which they factor into their monthly budget. But while renting via the website may seem as simple as posting property details online, the reality is more complex – and a recent court ruling could further complicate matters.

Thousands of people who use the site to rent out their leasehold property are potentially breaching their leases, and could be in danger of losing their homes, according to a recent ruling from the Upper Tribunal (Lands Chamber), the highest property court in the land.

Residents and occupiers of leasehold properties – mostly tenants and owners of flats – whose leases state that the property must be used as a “private residence” may now be prevented from renting out the homes for short terms of days and weeks. This clause is extremely common in leases.

“The implications are enormous,” says Nicole Rogers, a solicitor at DAS Law. “Millions of Airbnb hosts may have unwittingly breached the terms of their lease by hosting visitors, and the ruling may now pave the way for freeholders to take action. Airbnb will surely suffer as a result.”

The verdict came after a case [see panel] where a woman fell out with her neighbours in a development in north London when she let out her flat via Airbnb and other similar websites. Residents asked the freeholder of the block to act and the case went to court.

The judgment provides a clear legal precedent, says Giles Peaker, property disputes solicitor at Anthony Gold Solicitors. “Anyone doing Airbnb lettings in a leasehold flat should immediately check their lease.” The key question the court considered was whether a temporary occupation of an entire property by an Airbnb guest is consistent with the definition of the property as “a private residence” – and ruled it was not. Peaker says this means that if you own a leasehold flat defined as a private residence in the lease, and the freeholder discovers the entire flat is being let out to paying guests for short periods, you could be in breach.

Airbnb, however, said this was a ruling on a specific lease, and therefore the judge’s decision would not necessarily affect other hosts. “We ask all hosts to certify they have permission to list their space and remind them to check and follow local rules before they list their space and throughout the year. Our responsible hosting page also contains useful information and resources on the rules for home sharing,” a statement from the company said.

However, Peaker says the judge’s finding is binding on lower courts and tribunals. The ruling does not appear to prevent letting out single rooms in your home, however. If you live permanently in the leasehold property, occupying at least one of the bedrooms every time your guests stay the night, the ruling shouldn’t prohibit you from hosting. “Letting out the whole property is the issue,” Peaker says.

There have, however, already been implications from the ruling – in one case a buyer pulled out from a purchase in the hours following the ruling, the Observerwas told. Indeed, Lisa Gibbs, conveyancing partner at Simpson Millar, has started advising would-be Airbnb hosts not to buy leasehold properties which contain a “private residence” lease clause.

This is not the only clause which could raise problems. Another may prohibit you from subletting, underletting or otherwise “parting with possession” of the property. “Such clauses may amount to a blanket prohibition on holiday letting,” says Gabrielle Moffatt, partner at Dean Wilson.

Other common lease clauses may restrict occupation of the property to a single family, or prohibit use in a way that causes nuisance or annoyance to the occupiers of other flats. “Ultimately, there is a risk the leaseholder could lose their flat,” says Kirsteen Durrant, senior lawyer at Howes Percival. Some leases may even allow neighbours in your building to enforce lease clauses without involving the freeholder. Meanwhile, Airbnb hosts who wish to remove a restrictive lease clause are likely to find the process very costly. “You’d have to get the freeholder to agree to surrender your lease and grant a new one, and that could easily cost a few thousand pounds,” Peaker says.

Mortgage awareness

Property leases are not the only potential pitfall for would-be renters. The Council of Mortgage Lenders (CML) says Airbnb hosts who offer short-term lets without seeking permission from their mortgage lender are “very likely” to be breaking their mortgage contract. This applies to buy-to-let mortgages too – lenders generally do not allow short-term lets and predicate the mortgage on assured shorthold tenancy agreements of at least six months. This means if your lender discovers your property is being occupied by temporary Airbnb guests, it could theoretically call in the mortgage. If you fail to inform your lender – and the CML says they are unlikely to proactively check whether borrowers are Airbnb hosts – initially you’ll probably get a warning that you need to stop hosting. If you persist, however, the lender could then seek repayment of the mortgage, says David Hollingworth of L&CMortgages.

Prison possibilities

Criminal charges can be brought if a property is in Greater London and the resident lets any part of it out on a short-term basis for more than 90 days in any 365-day period. If you break this rule you get can fined up to £20,000. “That’s a breach of planning permission – so, a criminal offence – and you can be prosecuted for it in the magistrate’s court,” says Peaker. “There has already been a handful of local authorities who have brought proceedings, and I think more councils will do so.” However, no matter where your property is, if your guests repeatedly cause a statutory nuisance to your neighbours, you could be served with an abatement order and penalised by your local authority.

Ensuring you are insured

As a result of all these issues, most landlords ban subletting on a short-term basis in their tenancy agreements, which means tenants who host on Airbnb face eviction.

But even if you don’t have a landlord, a lease, a London property, a mortgage or an irate neighbour, you may still fall foul of your insurer. Airbnb hosts who fail to inform their buildings and contents insurer about their paying guests are potentially risking the very fabric of their building, and everything in it.

“If you don’t tell your insurer about your home-host plans then it may refuse to pay any claims and your insurance could be invalidated,” says Ben Wilson from Gocompare Home Insurance. It’s also possible your insurer may increase your premiums or refuse to cover you for Airbnb – if this happens, you may be able to get a better deal from a specialist insurer like Towergate or Guardhog.com.

Airbnb provides a “host guarantee” whereby it will “reimburse eligible hosts for damages up to £600,000”. However, its website states that this should not be considered a replacement for homeowners or renters’ insurance. It doesn’t protect cash and securities, pets, reasonable wear and tear, or shared or common areas, and offers limited protection for jewellery, collectibles and artwork.

In the UK, Airbnb also provides host protection insurance for hosts and landlords against liability claims up to £786,000 that occur in a listing, or an Airbnb property, during a stay. This protects you in the event of third party claims of bodily injury or property damage resulting from your guest’s stay, but does not cover intentional acts or property issues.

Ruling has consequences for other hosts

Iveta Nemcova sees her loss in court as an injustice – not just for her but for other leaseholders. The Slovakian interior designer and property developer tested the “private residence” clause of her lease in court, saying she paid the council tax and bills and stayed there three or four days a week. The court disagreed, however, with Judge Stuart Bridge saying there needed to be “a degree of permanence going beyond being there for a weekend or a few nights in the week”.

Now Nemcova wants Airbnb to fund further legal action. The company did not respond when asked. Nemcova says: “We cannot afford to appeal to the high courts. We’ve spent £7,000 on legal costs already. Airbnb would be silly not to, because the ruling has far-reaching implications for other hosts. It will lose its entire business in the UK. Every freeholder in the country is going to be using this ruling to try to repossess a property.”

But following the ruling, Airbnb said it was specific to this case only.

Nemcova’s troubles began after a guest threw a party in her one-bed flat in Enfield Island Village. “The next day we evicted those guests,” Nemcova says. However, a fellow leaseholder in her building decided to inform the freeholder of the building that Nemcova was letting her flat on Airbnb, and her freeholder took her to court for breaching her lease.

“I think leases should be abolished. Freeholders basically control your life. If you buy a flat, it should be yours,” Nemcova says. She has since ceased letting the flat on Airbnb, and is renting it out permanently to one tenant. “We’ve given up. You cannot fight the system.”

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